Before you learn about HECM Counseling, let’s first take a quick look at the history of reverse mortages so that you have a better understanding of why this counseling process was implemented.
Although the HECM for Purchase program (H4P) has only been around since January, 2009, the traditional reverse mortgage has been insured by the FHA since the late 1980’s and appears to becoming a very popular financial planning tool.
The purpose of a traditional reverse mortgage is to allow homeowners to convert their home equity into cash and eliminate their monthly mortgage payments. As compared to the traditional reverse mortgage, the H4P works exactly the same on the “back end” but is the exact opposite on the “front end”. Here’s what this means…
Before the H4P program became available folks were paying cash or using a traditional mortgage to purchase their dream home, and then would pull out cash using a traditional reverse mortgage. They loved having access to real money and not having to make a payment but they weren’t happy about having to incur closing costs for 2 transactions.
With the H4P program, they may have made a different decision about the type of home they purchased (usually higher value and options they really wanted).
The H4P program can now accomplish everything homeowners want and it is a single transaction.
Because the H4P is insured by the federal goverment, FHA requires each applicant to complete a counseling session with an independent third-party counselor over the phone. The average time required to complete the session ranges between 30 – 45 minutes and you should know that these counselors have no affiliation with any of the lenders. In other words, they are not working for lenders, they only represent your best interest.
The counselor will ask you a series of questions as well as answer any questions you have to confirm your understanding of the H4P program. The goal of the session is to be sure that a mortgage consultant isn’t telling you one thing, and then having something completely different happen at the closing table. After this session a Counseling Certificate will be issued showing completion.